Op-Ed: Ida provides warning about failings of energy regulation

Historic storm and what it did to the power grid in Louisiana shows how utilities and regulators need to refocus their efforts
Fred Fastiggi

Most of us may be familiar with the outdated practice of coal miners using canaries as an early warning system on carbon monoxide buildup. The idea is credited to John Scott Haldane whose research on carbon monoxide led him to recommend using canaries. His suggestion was to use a sentinel species: an animal more sensitive to colorless, odorless carbon monoxide and other poisonous gases than are humans. If the animal became ill or died, that would give miners a warning to get out of the coal mine before they met the same fate as their feathered sentinels.

The tragedy of Hurricane Ida in Louisiana could be our canary, a timely reminder of how important reliable and resilient electrical service is to our modern world and a reminder of just how neglected our system of transmission and distribution lines that make up our grid are.

In Louisiana, transmission towers that brought high-voltage electricity from their point of generation to substations, and the ubiquitous utility poles and wires that dot neighborhoods, simply crumbled and collapsed into a pile of twisted and rusted metal, not unlike a canary that stiffens and falls from its perch. The entire New Orleans area south of Lake Pontchartrain lost power because Entergy’s transmission lines — which delivered electricity from generators — failed simultaneously; Entergy is the utility that serves most portions of Louisiana.

As I write this, over 1 million residents of Louisiana are without power, and many will be for two to three weeks or more.

How could this happen? One cause is the loss of focus on the primary responsibilities of all electric utilities — the provision of resilient and reliable power delivery service to their captive ratepayers caused by an increasing dalliance in areas that are outside a traditional and customary regulated jurisdiction.

A misguided strategy

The evolution of our New Jersey electric utilities since the late ’90s when deregulation legislation opened up a whole new world — ostensibly aimed at lowering electric prices and improving electrical service through competition — has spawned its own budding hurricane. Many electric utilities restructured themselves, taking a quick buck from selling assets like their generating plants, using proceeds from the endowments their ratepayers had funded, and branching into new unregulated areas that are built upon purported core capabilities.

With deregulation, the thought was that competition would introduce an increased level of efficiency and technological evolution in the energy space, like what was experienced in the telecommunications industry. Deregulation was expected to introduce multiple generators and suppliers of electricity who would compete, resulting in lower pricing, rapid innovation and more choice for the power consumer. It anticipated the facilitation of technical breakthroughs equivalent to that of wireless telecommunications where dozens of new services came to fruition.

Well, the reality of what appeared to be a great idea has been a disappointment and a little frightening. Not sure why. Perhaps one of the differences has been that when Ma Bell was deregulated, she was an international entity without limited and mature geographic markets like many of our electric utilities. Its national reach spurred seven offspring in the form of “Baby Bells” who largely stuck to their knitting on the regulated side, providing copper-wire phone service, and when venturing into new areas, kept those efforts in non-regulated companies that did not require subsidy from their former captive ratepayers. Eventually new services that spawned from cellular became the economic engine of the Baby Bells. The anticipated lower pricing and new services, became a reality. (Remember what it cost to make a long-distance call to your grandparents in Florida or your dad on business in Chicago before cellular?)

Unlike the Baby Bells, our electric utilities ventured briefly into unregulated territory, but most found the lack of civility in those markets financially damaging and universally distasteful to the financial community who provided the non-regulated equity and debt capital for their operations. While the underlying premise of things like efficiency, renewable generation and electric vehicles would seem to be complementary to an electric utility’s legacy business, the required ramp-up to required levels of critical mass and competency proved to be an unending drain on scarce internal capital and available human resources. The solution was a hasty retreat, a brief period of recuperation to lick wounds, and reemergence as a graceful swan cloaked in the magnificent plumage of a benevolent, altruistic environmental pacesetter.

Utilities remade themselves using two transitional tactics. First, they shifted the emphasis and influence of their traditional crown jewel in terms of human resources from operating and engineering expertise, to influence peddlers and political movers and shakers. Then from making this transition in employee skills, they accumulated people who may not know a kilowatt-hour from a therm but who had the ability to convince legislators and regulators that ratepayer funding of their repackaged unregulated ventures needed to be paid for by captive customers in the name of environmental stewardship.

It would come as a surprise to many who have never dissected their electric bill to see what constitutes the price they pay for actual services (energy and the capacity to deliver that energy). While you pay for energy and capacity to deliver that energy, also included are the equivalent of multiple hidden taxes which fund what would be more appropriately termed social, or inequitable “entitlement” programs like electric vehicles, energy efficiency, and generation from nuclear and renewable sources.

This new utility strategy succeeded in securing funding for these entitlements from captive customers in the form of Societal Benefits charges or other obscure additions to the retail price they pay for electricity. These costs are paid equally by everyone from the unemployed, single mother struggling to raise her children, to the hedge fund manager in Short Hills. They are a regressive tax in every sense of the word that primarily fund the special interests of the electric utility and hordes of opportunistic consultants, lawyers and subcontractors who feed off these programs.

Does first-things-first still matter?

Renowned business authors like Peter Drucker and Stephen Covey have made “first things first” a primary component of their philosophy on business management. Indeed, even people like C.S. Lewis in his essay “First and Second Things” spoke on the misguided premise of luxuriating in peripheral pleasures like art and music as opposed to focusing first on the spiritual. He writes that such pursuits belonged to the “ornamental part of life, inciting us to virtue, or at least providing an innocent diversion.” In another essay on the same subject, he states: “Put first things first and we get second things thrown in; put second things first and we lose both first and second things.”

Could this be what we are seeing with our electric utilities? Would anyone doubt that the primary duty of ratepayer-funded electric utilities is the delivery of reliable and resilient electrical power? Yet, the peripheral products and services which make up our monthly invoices are dominating the attention of electric utilities and their regulators.

Our New Jersey Board of Public Utilities oversees electric, gas, cable, telecom, and water utilities. A quick review of the last 12 months of agenda items for BPU meetings revealed that 240 of 449 (53%) agenda or docket items for the executive and public sessions for all the regulated utilities mentioned above dealt with non-delivery items related to solar, wind and nuclear generation, efficiency, and electric vehicles. The level of dominance that these initiatives command from our legislators and regulators is a testament to the effectiveness of the transition electric utilities have made from operators and engineers to internal and external influence peddlers.

Acerbic pundit and philosopher H.L. Mencken observed: “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.”

Now I’ve spent most of my career in the energy field dealing primarily with efficiency, distributed generation, and the financing of those types of projects.  I’m a firm believer in the reality of global warming and don’t see it as an imaginary hobgoblin. I genuinely appreciate the BPU’s execution of the policy set by our current administration.

However, I do wonder whether we have taken our eye off the ball regarding electric resilience and reliability. If we had allowed things like efficiency, electric vehicles, nuclear and renewable generation to evolve in an unregulated environment like what occurred with the non-copper-wire components of the telecom industry, wouldn’t our evolution and development to a cleaner environment and more efficient energy consumption be more rapid and less costly? If the billions and billions of ratepayer dollars going to these initiatives were instead directed to further hardening our grid, would that be a higher and better use of public funding? The net effect on the ratepayer pocketbook would be unchanged but the increase in our ability to withstand catastrophic events like Ida would be compelling.

I recall a story about a lighthouse tended by a keeper who was given enough oil for one month and told to keep the light burning every night. One day a woman came by and asked for oil so that her children could stay warm. Then a farmer came. His son needed oil for a lamp so he could read. Still another needed some for his tractor. The keeper saw each as a worthy request and measured out just enough oil to satisfy all. Near the end of the month, the tank in the lighthouse ran dry. That night the beacon was dark, and three ships crashed on the rocks. More than 100 lives were lost. When a government official inquired, the keeper explained what he had done and why. “You were given one task alone,” insisted the official. “It was to keep the light burning. Everything else was secondary. There is no defense.”

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